National Industrial Outlook Stabilizing
What happened
The national industrial market is showing signs of steady improvement after a turbulent 2025. NAIOP's Q1 2026 forecast predicts occupiers are stabilizing, while low construction starts are helping fuel a demand recovery. This national trend provides a positive backdrop for regional leasing activity in Southern California.
Why it matters
The turbulent 2025 was marked by a significant oversupply of industrial space, with deliveries exceeding net absorption by 220 million square feet nationally. This drove the national vacancy rate up to 6.9% by the end of the year. The second half of 2025, however, saw a rebound with 128.7 million square feet of positive net absorption, signaling a crucial shift in market dynamics. A sharp decline in new construction is a primary driver of the current stabilization. Developers delivered nearly 281 million square feet in 2025, a 35% decrease from 2024 and the lowest annual total since 2017. This pullback, a reaction to higher interest rates and economic uncertainty in 2025, is now creating a more balanced market by preventing further upward pressure on vacancy rates. The Inland Empire, a key logistics hub, is mirroring these national trends. After a challenging 2025 that saw vacancy rates climb, the market is expected to stabilize and improve throughout 2026. A significant slowdown in new construction—with supply growth projected to be under 5 million square feet in 2026, down from over 25 million in 2024—is a key factor in this anticipated recovery. Tenant demand is showing a distinct "flight to quality," with a strong preference for modern, automation-ready Class A facilities. Large occupiers, particularly in the 3PL and e-commerce sectors, are driving this trend. E-commerce companies are expected to account for nearly 25% of all new warehouse leasing in 2026. This demand for specialized, high-power facilities is a top consideration in site selection. In the Inland Empire, fourth-quarter 2025 vacancy stood at 7.2%, with average asking rents holding at $1.00 per square foot (NNN). While availability is highest in mid-to-large-sized buildings (250,000-1 million sq. ft.), facilities under 50,000 sq. ft. remain in much stronger demand, with availability around 7%. Looking ahead, Prologis forecasts national net absorption to approach 200 million square feet in 2026, a significant increase from 155 million in 2025. Combined with a projected decline in new deliveries to around 180 million square feet, this is expected to push national vacancy rates down toward 7.1% by year-end. For Southern California specifically, while some market softness persists, both gross and net absorption showed improvement in the latter half of 2025, indicating a potential cyclical recovery.
Key numbers
- The national industrial market is showing signs of steady improvement after a turbulent 2025.
- NAIOP's Q1 2026 forecast predicts occupiers are stabilizing, while low construction starts are helping fuel a demand recovery.
- The turbulent 2025 was marked by a significant oversupply of industrial space, with deliveries exceeding net absorption by 220 million square feet nationally.
- This drove the national vacancy rate up to 6.9% by the end of the year.
What happens next
- After a challenging 2025 that saw vacancy rates climb, the market is expected to stabilize and improve throughout 2026.
- E-commerce companies are expected to account for nearly 25% of all new warehouse leasing in 2026.
- Combined with a projected decline in new deliveries to around 180 million square feet, this is expected to push national vacancy rates down toward 7.1% by year-end.
Quick answers
What happened in National Industrial Outlook Stabilizing?
The national industrial market is showing signs of steady improvement after a turbulent 2025. NAIOP's Q1 2026 forecast predicts occupiers are stabilizing, while low construction starts are helping fuel a demand recovery. This national trend provides a positive backdrop for regional leasing activity in Southern California.
Why does National Industrial Outlook Stabilizing matter?
The turbulent 2025 was marked by a significant oversupply of industrial space, with deliveries exceeding net absorption by 220 million square feet nationally. This drove the national vacancy rate up to 6.9% by the end of the year. The second half of 2025, however, saw a rebound with 128.7 million square feet of positive net absorption, signaling a crucial shift in market dynamics. A sharp decline in new construction is a primary driver of the current stabilization. Developers delivered nearly 281 million square feet in 2025, a 35% decrease from 2024 and the lowest annual total since 2017. This pullback, a reaction to higher interest rates and economic uncertainty in 2025, is now creating a more balanced market by preventing further upward pressure on vacancy rates. The Inland Empire, a key logistics hub, is mirroring these national trends. After a challenging 2025 that saw vacancy rates climb, the market is expected to stabilize and improve throughout 2026. A significant slowdown in new construction—with supply growth projected to be under 5 million square feet in 2026, down from over 25 million in 2024—is a key factor in this anticipated recovery. Tenant demand is showing a distinct "flight to quality," with a strong preference for modern, automation-ready Class A facilities. Large occupiers, particularly in the 3PL and e-commerce sectors, are driving this trend. E-commerce companies are expected to account for nearly 25% of all new warehouse leasing in 2026. This demand for specialized, high-power facilities is a top consideration in site selection. In the Inland Empire, fourth-quarter 2025 vacancy stood at 7.2%, with average asking rents holding at $1.00 per square foot (NNN). While availability is highest in mid-to-large-sized buildings (250,000-1 million sq. ft.), facilities under 50,000 sq. ft. remain in much stronger demand, with availability around 7%. Looking ahead, Prologis forecasts national net absorption to approach 200 million square feet in 2026, a significant increase from 155 million in 2025. Combined with a projected decline in new deliveries to around 180 million square feet, this is expected to push national vacancy rates down toward 7.1% by year-end. For Southern California specifically, while some market softness persists, both gross and net absorption showed improvement in the latter half of 2025, indicating a potential cyclical recovery.
